The return of overseas tourists has helped the country's current account deficit improve. Photo / 123rf
The return of overseas tourists has helped the country's current account deficit improve. Photo / 123rf
New Zealand’s annual current account deficit has continued to improve - thanks largely to the continued return of overseas tourists.
The deficit was $27.8 billion (6.9 per cent of gross domestic product) in the year ended December 31, 2023, according to figures released by Stats NZtoday.
On a quarterly basis, it widened by $167 million to $6.9b (from the September quarter).
While the gradual improvement was expected by economists, today’s result was stronger than many forecasts - ANZ economists had pencilled in a deficit of 7.1 per cent of GDP.
The current account is a measure of the money flowing into and out of the country - including what we spend and earn on imports and exports and corporate profits and investments flowing in both directions.
It is a component of New Zealand’s total balance of payments.
A current account deficit indicates that New Zealand is spending more than it is earning overseas. The size of the current account balance in relation to GDP shows its significance in the context of New Zealand’s overall economy.
In the year ended December 31, 2023, the narrowing annual current account deficit was driven by a $6.1b narrowing of the services deficit and a $0.3b narrowing.
New Zealand has mostly run deficits in the past few decades with the shortfall balanced by borrowing.
The spending by overseas visitors is called travel exports, while the spending by New Zealanders overseas is called travel imports.
In the year ended December 31, 2023, travel exports increased $6.8b to $12.9b. Related to the increase in travel exports, air transportation exports also increased $1.3b. Overall, services exports increased $9.0b in the year ended December 31, 2023.
“Most overseas visitor spending was by holidaymakers from Australia, the USA and the UK paying for things like their accommodation, meals, car rentals and holiday activities while in New Zealand. This inflow of money from overseas visitors narrowed New Zealand’s services deficit,” institutional sectors senior manager Paul Pascoe said.
“In the December 2023 year, New Zealand’s travel imports increased $2.5b, mostly from New Zealanders spending money on overseas holidays,” Pascoe said.
Overall, services imports increased $2.9b in the year ended December 31, 2023.
Insurance services imports also increased $0.7b in the year ended December 31, 2023.
“This increase was due to the rising reinsurance costs to New Zealand insurers following extreme weather events in 2023,” Pascoe said.
In the year ended December 31, 2023, the goods deficit narrowed by $0.3b to a $12.2b deficit.
Port of Tauranga. Photo / Alex Cairns
Goods exports decreased by $3.5b, driven by meats, dairy and logs and woods products.
Goods imports decreased by $3.9b, despite increases in non-crude fuels and transport equipment.
The decrease in goods imports was driven by intermediate goods, such as chemical products and fertilisers. Intermediate goods are used in the production of other goods.
“Looking across the major balances within the current account reveals clear narrowing in both the goods and services deficits,” said BNZ senior economist Doug Steel. “We anticipate further narrowing in both.”
The goods deficit was expected to narrow as imports continued to track below year-earlier levels reflecting soft domestic demand, he said. Meanwhile exports should show modest growth supported by somewhat higher commodity prices in 2024 compared with 2023.
The annual services deficit shrank to $3.2 billion in 2023, down from a peak of $9.4 billion just over two years ago.
That reflected tourist spending and the deficit was expected to narrow over time as inbound visitor spending continued to recoup ground lost during the pandemic.
“But we see that deficit narrowing progress being slower from here on and we think it will take some time before the services trade balance returns to surplus,” Steel said.
Liam Dann is business editor-at-large for the New Zealand Herald. He is a senior writer and columnist, and also presents and produces videos and podcasts. He joined the Herald in 2003.
